Sega Sue THQ For A Million Bucks, Which Seems Odd

By John Walker on July 10th, 2013 at 3:00 pm.

The reason I’m not a financial advisor, an accountant, nor even allowed access to RPS’s bank accounts, is because my understanding of money is thus: “Ooh, look at the pretty colours! I like the blue ones best! I’ll swap you my pinks for your blues?” So it is that I look at Eurogamer’s news that Sega is suing the not-existing-any-more THQ for £630,000 with only bemusement. It seems they want the Company Of Heroes pre-order cash from Steam.

Sega bought the rights to Company Of Heroes, along with the developer Relic, for over $26m. Now they’re asking the courts to give them $941,710.93 back, since a good chunk of this was paid to THQ by Valve after they’d filed for bankruptcy. Which, er, I guess is a thing.

While the machinations of bankruptcy law, where you can buy something from a company that’s gone kaput, and then sue the kaput company for things that only happened because of the circumstances that led up to your being able to buy things in the first place, are beyond me, there are a couple of interesting things to come out of this.

First is some tidy confirmation of the 30% cut everyone already knew Valve were taking from sales. The megacorp online store owners are very shy about this figure, and make it clear to developers that they’re not allowed to reveal it. Sinister! But this case, in which a total of $1,345,301.29 was placed in pre-orders, but only $940,000 given to THQ, demonstrates that 30% figure rather precisely (to five decimal places). (30% is pretty standard for online stores, although some like Humble take a good deal less.)

It also gives some solid figures on just how significant pre-order sales are. $1.35m between September 12 and Jan 13 gives you an idea of why publishers are so keen to push their pre-order bonuses to twist customers into paying for games before they’re complete/before reviews are out there. Which obviously no one should do, to destroy this ridiculous business model that shouldn’t be there in the first place. Amen.

How successful Sega will be, having bought their way in to joining the gang trying to claim back $200m from THQ’s bankruptcy mice, remains to be seen.

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86 Comments »

Top comments

  1. InnerPartisan says:

    Not only different colors, but also different sizes (Euros, anyway). “Convenience for blind people” is just one of the many evil socialist customs of Yurop.

  1. trjp says:

    My understanding of finance is far from “Bernard Madoff” level but I’m pretty sure anyone who received monies has to exist.

    In fact that’s more and more becoming the definition of ‘existing’ – receiving monies…

  2. laijka says:

    So, SEGA is suing to get money that THQ got while SEGA didn’t own the IP..?

    My head hurts..

    • Runty McTall says:

      Well presumably the contractual terms of them purchasing the IP gave them, at least in their interpretation (or their lawyers’), the right to all revenue as yet uncollected on the game.

      Just because the sales occurred before contract was arranged doesn’t mean that you can’t sell the right to collect them to someone else. There’s a whole business around it actually – it’s called debt collection.

      • laijka says:

        But isn’t the money already collected?

        • Premium User Badge

          Schmudley says:

          Is the issue that, at the time the initial deal was made, there was no mention of the pre-orders in the contract, probably by mistake? That would presumably mean someone in Sega’s legal team realised they forgot to stake a claim on the £900k of pre-orders, and so they’re quickly trying to change that now so that they can at least get something as THQs assets are sold off to pay everyone it was in debt to.

        • dahools says:

          collected by valve yes (the storefront), but not the developer who made the product, who sold the rights to that product on before receiving those moneys stated. If that has whats gone on, I haven’t read the article then Sega are well within their rights to lay claim to the cash I recon.

          Depends THQ may argue that those items were sold before the rights were bought so technically was revenue from previous, just received late. I think every pre order after the rights were transferred would definitely Sega’ entitlement.

          Would be interesting to know who let Sega know that that money had come THQ’s way as I don’t think Valve would have rand them up and said,

          “hey you know that game you now own the rights to, we just gave a load of cash to the previous owner for it.”

          and i’m sure THQ wouldn’t have been shouting about that cash landing on their doorstep.

          • InternetBatman says:

            Why wouldn’t they? The last thing Valve wants to do is start a bad relationship with a mid-sized publisher in favor of a defunct one.

  3. Premium User Badge

    RedViv says:

    I distinctly remember a Paradox (or affiliated) dev just so stating that Steam takes 30 percent. Did that occur, am I just going more mad?

    • SkittleDiddler says:

      That sounds about right. The 30% number has been mentioned before by various industry insiders, so it’s most likely accurate.

      • MadTinkerer says:

        I’m pretty sure someone (Indie, I think) did leak or heavily imply that specific number before as well.

        A flat 30% is actually a pretty good deal considering Valve are doing all the server maintenance, maintaining all the various Steam services (Steam game forum, other community services, achievement tracking, matchmaking, workshop, etc), no subscription fees for customer or developer, secure transactions, etc.

    • DougyM says:

      Notch as well said that if i mind right, basically saying he would not put Minecraft on steam because it was already successful enough without it and he did not agree that Steam should get a 30% cut of his games profits just because they would be hosting the files just like he was already taking care of and getting 100% of the money.

    • wodin says:

      Some take upto 40% or more esp if they help you with development..plus you usually don’t own the game any more the publisher does as many want exclusivity..I believe Slitherine group only take developers on exclusivity contract, wasn’t always like that I think they changed quite recently. This means you can’t sell your game anywhere else nor have a say in it’s price. Also the publisher has a massive say in the game, thats another reason why it seems many developers are risk averse..it isn’t them but the publisher. Why do you think with regards to wargames it’s mainly the West front WW2?? Because the publisher wont take on a game covering say Finnish War..unless you have a proven engine already and a big customer base. I see many people asking for wargame son less well known wars\battles and they think the developers aren’t interested..when in actual fact they are and would love to but the Publisher says NO!.

  4. frightlever says:

    If THQ owe a 100 million dollars, say, and have recoverable assets of 10 million, say, then Sega are just staking their claim to some of that. Nobody, least of all Sega, is expecting to get the entire amount. Frankly, they’ll probably get a fraction of it, but something is better than nothing to a good bean-counter.

    • Golwar says:

      That’s correct. The topic should rather be if Sega should have any claim on that money at all.

      Nobody would get the smart idea that previous revenues for the first CoH should be paid out to Sega, for example. So the only open question is if Pre-Orders should be treated differently.
      And I don’t think so. Sega should have considered that factor when they made their decision how much they were willed to pay for the IP.

      • Baboonanza says:

        The real issue here is the crazy way Steam treats pre-orders. Taking payment for a pre-order at time of purchase is one thing, and you could argue they shouldn’t even be doing that.

        But paying that pre-order money to the publisher before the release of the game is insane. INSANE! If these pre-orders had been made through Amazon (for instance) the money would have all gone to SEGA because the pre-order revenue would have been transferred at time of shipping.

        • Halbarad says:

          I have to disagree in one respect Baboon. Valve have no right to hold onto the revenues of a sale over the actual creator of that product. Once something is collected then the funds should be sent out to the right party.
          If the game is then not finished, cancelled or postponed for any reason then Valve send a bill to the party. Or simply withhold the correct amount from future transfers of funds.

          The thing with the company of heroes two purchases is that they were, actually, that. Purchases. They weren’t preorders, they were prepurchases, a completely different thing. A preorder is an order with the intent to purchase the item, easily cancelled with no fuss. There’s absolutely no reason to ever need to preorder a digital game anyway, digital games are infinite. Prepurchases came along as a way for companies to simply fill their coffers earlier, before reviews came out.

          • El_Emmental says:

            That is correct, however the store and what Relic/Sega showed in their marketing materials was the word “pre-order” and not “pre-purchase”, which is just adding to the confusion.

          • frightlever says:

            @El_Emmenta – very good point.

      • frightlever says:

        To be honest, I kinda agree. But courts are a lottery, so roll the dice. Sega have scads of lawyers on retainer so it isn’t costing them anything.

    • InternetBatman says:

      Would that fraction be large enough to be worth the legal fees?

      • frightlever says:

        Sorry, replied above before I even read your question. Makes me look like a smart-ass, answering your question in a higher posting.

        But, I think yes it would. Big firms, actually even not that big firms, have regular counsel. They have lawyers on tap, either on payroll or at a favourable hourly rate. Most of this is rote. Lawsuit this, lawsuit that is hyperbole. Lawsuits are just another tool. Real people attach more importance to lawsuits than corporations do. Corporations have, without exception, liability insurance, negligence insurance and culpability insurance. If I had that, I’d get drunk EVERY night. Instead of just the nights I’m not recovering from getting drunk. Take THAT stupid crutch guy giving me a 3ft 11 instead of a 4ft 3.

        In a way, we’ve replaced the threat display from the natural world with solicitor’s letters. A moth can scare off a buffalo by pretending to be a snake eating a butterfly, and we have lawyer letters. It’s a poor exchange but that’s where we are.

  5. engion3 says:

    Your money is different colors? I learn something new about life and shit everyday from this blog. Thanks.

  6. Premium User Badge

    Lord Custard Smingleigh says:

    Seems reasonable to me. I’ve been locked in mortal struggle with Napoleon for decades.

    • Premium User Badge

      AlwaysRight says:

      Ah, I bet he’s using the old power of silence technique. Cheeky blighter, always thinking of the long term strategy.

    • Scumbag says:

      Try the latest patch. It nerfs Frenchmen.

    • Dances to Podcasts says:

      The trick is to take on his generals separately and whittle down his armies bit by bit before you actually take on the big guy himself.

  7. Cei says:

    They’re staking a claim in the bankruptcy process, and trying to be put top of the list of creditors by highlighting the fact that THQ were paid this money after THQ declared bankruptcy. Essentially that $940k should be sitting in a THQ bank account untouched.

  8. Arkh says:

    30% is just one of the deals they do, the standard one. They sign contracts with other developers (like BIS, Stardock and Paradox) to release some (or all) games exclusively on Steam, in exchange the devs get a higher cut (on those games) and the competition (and sometimes, some customers such as myself) get screwed up.

  9. ItalianPodge says:

    It’s possible that the $26m they offered for the rights has not yet been paid in full and they are simply trying to pay $25m rather than actively recover the money from THQ.

  10. Jimbo says:

    that’s million bucks

  11. Mr. Mister says:

    30% has a three…

  12. Talorc says:

    Do we have to be so condescending and dismissive of finance related stories around here? Some people who work in finance related fields actually play computer games you know.

    • Sparkasaurusmex says:

      Cos it the industry itself brings down the poorest parts of the world. The money industry, that is.

    • Dances to Podcasts says:

      Of course you do. You’re all a bunch of psychopaths! ;)

      http://blogs.hbr.org/cs/2012/03/psychopaths_on_wall_street.html

      • Don Reba says:

        Now, there is nothing wrong with being a psychopath.

        • Don Reba says:

          Well, I wouldn’t watch a TED talk, less someone held my feet to fire, but in general, I would trust a psychopath to make fewer mistakes due to excessive emotionality, which is good if he is working for my side.

    • PopeRatzo says:

      Some people who work in finance related fields actually play computer games you know.

      We are all very much aware that people in finance play computer games. They’re called “derivative traders” and when they lose, we all have to cover their losses.

      Back in 2007, their little online role-playing game nearly brought down the world’s economy.

  13. Urthman says:

    Although I agree entirely, it’s always kind of funny to see the gaming press railing against pre-orders without explicitly saying, “How dare you buy a game before we get a chance to tell you whether you should buy it or not?! You’re ruining our business model!”

    • AngoraFish says:

      It’s particularly funny since the volume of preview coverage churned out by the gaming press is the very thing spinning the hype-mill that’s driving these pre-order sales in the first place.

  14. Arithon says:

    After releasing Aliens: Colonial Marines with a straight face, it doesn’t surprise me that SEGA are attempting the legal equivalent of picking up the chair they’re standing on.

  15. Lemming says:

    At this point isn’t suing THQ for anything a bit like fighting over the plate the cake used to be on?

    • frightlever says:

      Yeah. But it’s a plate bought by a billion dollar company that fell apart after mis-judging how 300 million dollars in sales should look like. That’s probably a plate worth pillaging.

      I suspect there is confusion amongst reader and writers alike. I used to get angry when Coronation Street and Emmerdale made weird, clearly mad plot decisions based upon no logic I understood.

      Then we had the financial melt-down. And shows like Coronation Street and Emmerdale showed EXACTLY how it had all happened. But they didn’t. And they didn’t in a painfully un-nuanced way that probably hurt more than it helped. No-one will ever untangle our current financial crisis.There have been good books approximating it, but, little old pessimist me, thinks no-one will ever really get to the bottom of it. Three bucks of reporting versus a quadrillion of financial industry self-interest? Yeah, them journalists will get to the bottom of it.. no-one is going to lie to them…

      Historically, many corporations that have gone “bankrupt” have then gone on to have successful, profitable careers. Often without leaving bankruptcy. Bankruptcy is a US cure-all, like one of those FFVII potions that did for everything.

      TL:DR if you like games, buy games, if you hate corporations, buy indie games, but appreciate that small acorns beget big corporations and all those corporations were indies once.

      • drinniol says:

        You’re confusing bankruptcy with bankruptcy protection a little, I think.

      • Beefeater1980 says:

        Drinniol is correct. Insolvency is a state that a company can get into, and means that the company owes money that it has no way of repaying. That doesn’t mean that the underlying business isn’t profitable. It could be wildly profitable. But what sends a company into insolvency is the managers of a company cocking up its finances. Ultimately, if the company can’t then cut a deal with the people it owes money to (its creditors), ultimately it will be liquidated, with its assets parcelled out to its creditors, often pro rata to how much it owed each of them.

        Most jurisdictions have some kind of ruleset that tries to ensure that profitable businesses or assets can survive the insolvency of the company that owns them without having to break everything up, lay everyone off, and sell the assets at bargain basement prices:

        * In the UK there is the administration procedure, where a third party is brought in to manage the company and hopefully keep the company alive by restructuring/selling bits off.

        * In the US there is the Chapter 11 reorganization procedure, which lets an insolvent company continue to do business while its owners try to cut a deal with its creditors to keep the company alive.

        In both cases, the intention is to try to avoid the ultimate liquidation of the company (or if it can’t be avoided, at least to maximise the value of the assets). That’s why, for example, companies in insolvency often get to set aside particularly burdensome contracts.

        Ultimately, there are 4 competing interests when a company gets into trouble, and what happens next is usually a balancing of these interests:

        * Owners of the company want the company kept alive long enough to pay its creditors, so the company is still worth something.
        * Creditors want to get paid back.
        * Some people will usually want the company to fail either to reduce competition or so that they can cherrypick its assets at bargain basement prices.
        * Employees want the business to keep running so they keep their jobs. Often they don’t care too much who owns it. They usually don’t have a seat at the table, but if there are a lot of them then government or the courts may try to cushion the impact.

        (would be awesome if a specialist insolvency practitioner wants to explain things better).